Chidem Kurdas
Analysts parsing market prospects have come up with different investment ideas. You see this among both banks and hedge funds. Barclays Capital’s outlook for the third quarter highlights divergences between countries.
Barclays head of research Larry Kantor notes that there may be more of a carry trade in the next few months. He says markets will bounce back near term but the easy money has been made in the first year of economic recovery and now it’s more difficult.
The people at Bank of America Merrill Lynch Global Research are more optimistic about US stocks. David Bianco, head of US equity strategy, says technology stocks offer low-hanging fruit with little risk, while financial shares promise strong returns. He sees foreign markets as the growth engine, with export-oriented companies doing well.
By contrast, financial stocks are not a buy for Barry Knapp, head of Barclays US equity strategy. Once banks get through new financial regulation, they will have to struggle with new Basel rules, in particular higher capital requirements that will slow down financial sector growth, he says. He likes European equities, which are cheap, better than US equities.
Hedge funds’ perspectives are if anything more diverse than bank analysts’. Some expect a US equity rally, at least in the short run. Tech and financial names are still popular. Others buy gold, following John Paulson and George Soros. Many are holding energy companies—even BP, though the preference now is for secure BP debt, not stock, considering the limitless legal liabilities created by the Gulf of Mexico spill and the potential for bankruptcy.
Emerging markets debt is another major draw. Most analysts agree on that. EM debt is inexpensive and Russian credit, for instance, performs well in bull markets, says Michael Gavin, managing director and head of emerging markets strategy at Barclays. By the way, he was Citadel Investment Group’s EM economist before he joined Barclays in 2009.
Francisco Blanch from BofA Merrill Lynch pointed to the key factor. Interest rates are very low in developed countries but higher in EM. Therefore money is shifting from developed markets to commodities and EM debt. He believes the commodity super-cycle will continue and expects oil prices to breach $100 a barrel next year.
So hedge funds are big on energy companies and the carry trade—Brazilian interest rates look attractive.
Tags: Barry Knapp, BP, David Bianco, Francisco Blanch, George Soros, Larry Kantor, Michael Gavin
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